Microsoft, Linux Foundation hate on ALI contract guidelines

Microsoft and the Linux Foundation have written an open letter to the American …

In public debates about emerging intellectual property issues that relate to software, the Linux Foundation and Microsoft are often on opposing sides. Both seem to agree, however, that a new set of guidelines authored by the American Law Institute (ALI) for interpreting software contract law is deeply flawed.

In an open letter that was published Monday, the Linux Foundation and Microsoft contend that the ALI's Principles of the Law of Software Contracts is detrimental to the growth of the software industry and the open source software ecosystem. The point of contention is a section of the Principles which states that vendors implicitly grant buyers a nondisclaimable guarantee that commercially-distributed software contains no hidden flaws.

The relevant section says:

A transferor that receives money or a right to payment of a monetary obligation in exchange for the software warrants to any party in the normal chain of distribution that the software contains no material hidden defects of which the transferor was aware at the time of the transfer. This warranty may not be excluded.

Microsoft and the Linux Foundation suggest that this aspect of the Principles is vague, excessive, and not an accurate interpretation of law. They also argue that a narrowly defined exception—which says that the implied warranty is not applicable to software that is made available at no cost—is poorly crafted and ignores the increasingly complex diversity of new software distribution models. They say that the Principles are too heavily focused on the conventional shrinkwrap software business practices, which are gradually becoming an anachronism.

The ALI is not an official legislative body. It's an independent organization that documents well-established case law and provides written guidance on a wide range of legal issues. The texts produced by the ALI, which are generally written in the same style as a formal legal code, are widely used as reference material by judges and lawyers. The ALI is preparing to review the Principles draft for approval at a meeting this week, and Microsoft and the Linux Foundation have published their open letter now in order to raise awareness of what they perceive as flaws in the draft before it is reviewed.

Flawed guidelines

The implied warranty could create immense litigation for software vendors and could even make individual open source software contributors liable for defects in open source software code that is later distributed in a third-party commercial product. The Linux Foundation argues that there are too many grey areas about the scope of the warranty and what constitutes commercial distribution. This aspect of the Principles clearly conflicts with open source software licenses that disclaim warranties. The resulting fear of litigation could broadly deter companies, universities, and individuals from making their source code available.

Microsoft argues that the exclusion for software that is distributed free of charge is highly ambiguous. It's not clear if the exclusion applies to the software as a service model or software that is made available for free but generates revenue through an ad-supported revenue model.

In the open letter, Microsoft and the Linux Foundation both argue that the ALI assertion that the warranty cannot be disclaimed is inconsistent with the Uniform Commercial Code or any other existing law in the United States that regulates the sale of goods. This means that the implied warranty is unique to software.

Horacio Gutierrez, Microsoft VP and deputy general counsel, discussed some of the problems with the ALI's principles in Microsoft's official blog about legal and policy issues.

"The mere fact that the Linux Foundation and Microsoft are joining forces may be viewed by some as remarkable, given that our differences receive far more public attention than when our interests converge. But there is a wide range of issues that affect all software developers alike," he wrote. "While the Principles reflect a lot of hard work and thought by the ALI, Microsoft and the Linux Foundation believe that certain provisions do not reflect existing law and could disrupt the well-functioning software market for businesses and consumers, as well as create uncertainty for software developers."

This sentiment is shared by Linux Foundation executive director Jim Zemlin, who also blogged about the issue. "The principles outlined by the ALI interfere with the natural operation of open source licenses and commercial licenses as well by creating implied warranties that could result in a tremendous amount of unnecessary litigation, which would undermine the sharing of technology," he wrote.

The fact that both Microsoft and the Linux Foundation share the same views on this issue is a relatively clear indication that it's potentially troubling to a large segment of the software industry and could have a negative impact on software developers and vendors across a wide spectrum of business models and ideological alignments. Their combined voice could be sufficient to send the ALI a wakeup call.